REVENUE FROM CONTRACTS WITH CUSTOMERS

Adoption of ASC Topic 606, “Revenue from Contracts with Customers” (ASC 606)

ASC 606 became effective for the Company on December 31, 2017 and was adopted using the modified retrospective method for all contracts not completed as of the date of adoption. For contracts that were modified before the effective date, the Company reflected the aggregate effect of all modifications when identifying performance obligations and allocating transaction price in accordance with the practical expedient, which did not have a material effect on the cumulative impact of adopting ASC 606. The reported results for fiscal year 2018 reflect the application of ASC 606 guidance while the historical results for fiscal years 2017 and 2016 were prepared under the guidance of ASC 605, “Revenue Recognition” (ASC 605).

The cumulative effect of applying ASC 606 to all contracts with customers that were not completed as of December 30, 2017 was immaterial. There is no material difference in the reporting of revenue during fiscal year 2018 in accordance with ASC 606 when compared to ASC 605.

Disaggregation of Revenue

The following tables disaggregate the Company’s revenue by major business line and timing of transfer of products or services:



Major Products/Service Lines:	2018
	(in thousands)
RMS	$	519,682
DSA	1,316,854
Manufacturing	429,560
Total revenue	$	2,266,096



Timing of Revenue Recognition:	2018
	(in thousands)
RMS
Services and products transferred over time	$	202,872
Services and products transferred at a point in time	316,810
DSA
Services and products transferred over time	1,316,005
Services and products transferred at a point in time	849
Manufacturing
Services and products transferred over time	128,287
Services and products transferred at a point in time	301,273
Total revenue	$	2,266,096

RMS

The RMS business generates revenue through the commercial production and sale of research models and the provision of services related to the maintenance and monitoring of research models and management of clients’ research operations. Revenue from the sale of research models is recognized at a point in time when the customer obtains control of the product, which may be upon shipment or upon delivery based on the shipping terms of a contract. Revenue generated from research models services is recognized over time and is typically based on a right-to-invoice measure of progress (output method) as invoiced amounts correspond directly to the value of the Company’s performance to date.

DSA

The Discovery and Safety Assessment business provides a full suite of integrated drug discovery services directed at the identification, screening and selection of a lead compound for drug development and offers a full range of safety assessment services including bioanalysis, drug metabolism, pharmacokinetics, toxicology and pathology. Discovery and Safety Assessment services revenue is generally recognized over time using the cost-to-cost or right to invoice measures of progress, primarily representing fixed fee service contracts and per unit service contracts, respectively.

Manufacturing

The Manufacturing business includes Microbial Solutions, which provides in vitro (non-animal) lot-release testing products, microbial detection products, and species identification services; Biologics Testing Services (Biologics), which performs specialized testing of biologics; and Avian Vaccine Services (Avian), which supplies specific-pathogen-free chicken eggs and chickens. Species identification service revenue is generally recognized at a point in time as identifications are completed by the Company. Biologics service revenue is generally recognized over time using the cost-to-cost measure of progress. Microbial Solutions and Avian product sales are generally recognized at a point in time when the customer obtains control of the product, which may be upon shipment or upon delivery based on the contractual shipping terms of a contract.

Transaction Price Allocated to Future Performance Obligations

ASC 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of December 29, 2018. The guidance provides certain practical expedients that limit this requirement and, therefore, the Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which revenue is recognized at the amount to which the Company has the right to invoice for services performed.

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially satisfied) as of December 29, 2018:



	Revenue Expected to be Recognized in Future Periods
	Less than 1 Year		1 to 3 Years		4 to 5 Years		Beyond 5 Years		Total
	(in thousands)
DSA	$	138,132	$	94,230	$	5,022	$	647	$	238,031
Manufacturing	10,584		20,193		6,448		31		37,256
Total	$	148,716	$	114,423	$	11,470	$	678	$	275,287

Contract Balances from Contracts with Customers

The timing of revenue recognition, billings and cash collections results in billed receivables (client receivables), contract assets (unbilled revenue), contract liabilities (current and non-current deferred revenue), and customer deposits on the consolidated balance sheets. The Company’s payment terms are generally 30 days in the United States and consistent with prevailing practice in international markets. A contract asset is recorded when a right to consideration in exchange for goods or services transferred to a customer is conditioned other than the passage of time. Client receivables are recorded separately from contract assets since only the passage of time is required before consideration is due. A contract liability is recorded when consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract. Contract liabilities are recognized as revenue after control of the products or services is transferred to the customer and all revenue recognition criteria have been met. The following table provides information about client receivables, contract assets, and contract liabilities from contracts with customers:



	December 29, 2018		December 30, 2017 ⁽¹⁾
	(in thousands)
Balances from contracts with customers only:
Client receivables	$	370,131	$	335,839
Contract assets (unbilled revenue)	105,216		96,297
Contract liabilities (current and long-term deferred revenue)	179,559		125,882
Contract liabilities (customer contract deposits)	38,245		—
⁽¹⁾ The beginning balance as of December 30, 2017 is presented under the guidance of ASC 605.

Under ASC 606, when the Company does not have the unconditional right to advanced billings, both advanced client payments and unpaid advanced client billings are excluded from deferred revenue, with the advanced billings also being excluded from client receivables. As of December 29, 2018, the Company excluded approximately $22 million of unpaid advanced client billings from both client receivables and deferred revenue and approximately $38 million of advanced client payments have been presented as customer contract deposits within other current liabilities in the accompanying consolidated balance sheets.

Other changes in the contract asset and the contract liability balances during fiscal year 2018 were as follows:

(i) Changes due to business combinations:

See Note 2. “Business Acquisitions and Divestiture” for client receivables, unbilled revenue, deferred revenue, and customer contract deposits that were acquired as part of the MPI Research acquisition occurring on April 3, 2018 and the KWS BioTest acquisition occurring on January 11, 2018.

(ii) Cumulative catch-up adjustments to revenue that affect the corresponding contract asset or contract liability, including adjustments arising from a change in the measure of progress, a change in an estimate of the transaction price (including any changes in the assessment of whether an estimate of variable consideration is constrained), or a contract modification:

During fiscal year 2018, an immaterial cumulative catch-up adjustment to revenue was recorded.

(iii) A change in the time frame for a right to consideration to become unconditional (that is, for a contract asset to be recorded as a client receivable):

Approximately $92 million of unbilled revenue as of December 30, 2017 was billed during fiscal year 2018.

(iv) A change in the time frame for a performance obligation to be satisfied (that is, for the recognition of revenue arising from a contract liability):

Approximately $101 million of contract liabilities as of December 30, 2017 were recognized as revenue during fiscal year 2018.